A. Background of ITC.
Input Tax Credit (ITC) or Purchase Tax is one of the most important aspects in any value added tax structure. This ensures that tax is paid on value addition only, at each stage from production to final consumer.
Following are the two major advantages of ITC:-
1. Less tax burden on tax payers.
2. Price of goods remains under control.
The above are simple meaning of ITC (Input Tax Credit) now let us see what the law says.
ITC Definition under GST Law
Input- Section 2(59) of CGST Act, 2017
“Input” means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business.
Input Tax- Section 2(62) of CGST Act, 2017
“Input Tax” in relation to a registered person, means the Central Tax, State tax, integrated tax or Union territory tax charges on any supply of goods or services or both made to him and includes-
a. The integrated tax and service tax charges on import of goods;
b. The tax payable under Section 9(3) and 9(4) i.e. tax deposited under RCM.
c. The tax payable under Section 5(3) and 5(4) of IGST Act,2017 i.e. tax deposited under RCM in IGST Act.
d. The tax payable under Section 9(3) and 9(4) of SGST Acts i.e. tax deposited under RCM.
e. The tax payable under Section 7(3) and 9(4) of UTGST Acts i.e. tax deposited under RCM.
But does not include tax paid under composition levy.
Input Tax Credit- Section 2(63) of CGST Act, 2017
“Input Tax Credit” means the Credit of Input Tax.
B. MANNER OF TAKING INPUT TAX CREDIT (ITC)-Section 16(1)
√ The supplier should be registered under GST.
√ The recipient should be registered under GST.
√ Goods or Services are used or intended to be used in the course or furtherance of business.
√ The amount of ITC should be credited to e-Credit Ledger.
√ ITC should be claimed in specified time i.e. within next FY 30th September or filing of Annual Return (31st December after end of FY) whichever is earlier.
UTILISATION OF ITC
| IGST | CGST | SGST |
| Adjusted with output of IGST (Intrahead) |
Excess of IGST is adjusted with output of CGST |
Excess of IGST is adjusted with output of CGST |
| Adjusted with output of CGST (Intrahead) | Adjusted with output of SGST (Intrahead | |
| Excess if any adjusted with output of CGST | Adjusted with output of IGST | Adjusted with output of IGST |
| Excess if any adjusted with output of SGST or UTGST as the case may be |
END |
END |
C. CONDITIONS OF TAKING INPUT TAX CREDIT (ITC)-Section 16(2)
> Possession of original copy of tax invoice or debit note or such other taxpaying documents as prescribed.
> Has actually received the goods or service or both.
> Tax with respect to which ITC is claimed must be deposited to the Government either through utilization of e-cash ledger or e-credit ledger.
> Supplier has furnished the return U/s. 39 of the CGST Act, 2017
All above conditions should be satisfied to eligible for ITC.
D. DOCUMENTARY REQUIREMENT FOR TAKING INPUT TAX CREDIT (ITC)-Rule 36
As per Rule 36 of CGST Rule, 2017–
1. The ITC shall be availed by registered person, including ISD on the basis of following documents namely-
a. Tax Invoice issued by supplier U/s.3
b. An Invoice issued in accordance with section 31(3)(f) of CGST Act, 2017 subject to payment of Tax. (i.e. RCM documents).
c. A debit note issued by supplier in accordance with provision of Section-34
d. A bill of entry or similar document prescribed under Custom Act, 1962 or rules made there under for Assessment of IGST on import.
e. An ISD invoice or ISD Credit Note or any document issued by an Input Service Distributor in accordance with provision of Rule 54(1) of CGST Rule,2017.
2. All particulars as specified in chapter-VIA shall be mentioned in documents as referred above.
3. No ITC shall be allowed to registered person in respect of any tax that has been paid in pursuance of any order where any demand has been confirmed on account of any fraud, willful misstatement or suppression of facts.
E. ITC on Advance paid
No credit shall be available in case advance is paid against future supply of goods and services.
F. ITC IN CASE GOODS IS RECEIVED IN LOTS OR INSTALLMENT AGAINST AN INVOICE-SEC.16(2)
ITC is allowed when last lot or installment is received although invoice is raised along with first lot or installment.
G. REVERSAL AND RECLAIM OF ITC WHERE PAYMENT IS NOT MADE TO SUPPLIER WITHIN 6 MONTHS-16(2)
Where ITC is availed on any purchase and payment is not made within 180 days from date of invoice then eligibility of ITC is lost. It is the duty of purchaser to reverse the equal amount of ITC and add this amount to his output GST along with interest @ 24% p.a. to be calculated from the date when ITC is claimed till it is actually reversed.
However, ITC reversed as above shall be reclaimed in the month in which amount is actually paid to the creditors.
H. ITC ON PURCHASE OF FIXED ASSETS- SECTION 16(3)
If the capital assets is capitalized on its full value including GST and depreciation is claimed on full amount (including GST) as per Income Tax Act, 1961 then ITC is not allowed.
I. TIME LIMIT FOR CLAIMING OF ITC- SECTION 16(4)
ITC shall not be allowed with respect to the any invoice –
a. After last date for furnishing of return for the month of September in next FY or
b. After furnishing of annual return i.e.31st December in next FY.
Whichever is earlier.
J. APPORTIONMENT OF ITC-SEC-17
ITC is allowed only when goods or services is purchased for used or intended to use for the business or furtherance of business for supply of taxable goods and services.
Where goods or services purchased is used partly for business and non-business use or partly for taxable and exempted goods then tax payer shall caluculate reasonable ration and reverse the amount of ITC which is used for supply of exempted goods or service and non business.
Meaning of exempted supply-section 2(47):-
“Exempted supply” means supply of any goods or service or both which attracts nil rate of tax or which may be wholly exempt from tax u/s.11 or u/s.6 of IGST Act, 2017 and includes non taxable supply.
K. BLOCKED ITC OR NEGATIVE LIST GOODS AND SERVICES-SEC 17(5)
ITC with respect to following goods and services are treated as negative list and ITC is not allowed (i.e. blocked):-
| BLOCKED ITC | EXCEPTION |
| Motor Vehicle and other conveyance | Where seating capacity is more than 13 persons including driver.
Sale of such motor vehicle or conveyance Transportation of passengers Imparting training on driving, flying, navigating such vehicle or conveyance. |
| Food, beverage, outdoor catering, beauty treatment, health services, cosmetics and plastic surgery. | If tax payer is in the business of same category. |
| Membership of club or health or fitness centre | |
| Rent a cab or life insurance or health insurance | Government notifies Tax payer is in the same line of business. |
| Leave or Home Travel benefit provided to employees | |
| Works contract service to immovable properties | Plant and machinery
Where tax payer is same line of business |
| Goods or services used for personal consumption | |
| Goods lost, stolen ,destroyed, written off or disposed of by way of gift or free sample | |
| Purchase detected after fraud, willful mis-statement or search and seizure. |
L. ITC IN CASE OF BANK, FINANCIAL INSTITUTIONS AND NBFC- SECTION 17(4)
Banks have option to comply related provisions to claim 100% ITC otherwise 50% of eligible ITC shall be allowed to them in every month.
On the other hand taxpayer is fully eligible to avail ITC on banking service availed by him provided other conditions are fulfilled such as GST number should be mentioned, return is filed by bank etc.
M. ITC IN SPECIAL CIRCUMSTANCES
1. In case of compulsory or voluntary registration the tax payer is entitled to claim ITC on stock held on date immediately preceding the date from which he is liable to pay tax -Section 18(1a) and 18(1b)- File form no. ITC-1
2. In case tax payer goes for composition scheme from regular scheme then he is liable to reverse ITC on the stock held on the date preceding the day from composition scheme is eligible for him- section18(1C). File form no.ITC-3
3. In case of change in the constitution of business due to merger, amalgamation and take over then new entity shall be eligible to use reaming balance of ITC in e-credit ledger-Section 18(3). File form no. ITC-2
N. VARIOUS ITC FORMS
| Form No. | Particulars | Due date |
| ITC-1 | Declaration for claim ITC on goods held in stock on preceding day in case of u/s. 18(1)- special ITC discussed above | Within 30 days from the event. |
| ITC-2 | Declaration for transfer of ITC in case of sale/ merger/ amalgamation etc. section 18(3) | Within 30 days from the event |
| ITC-3 | Declaration for reversal of ITC U/s.18(4) for person opting composition scheme from regular scheme | Within 60 days from the event |
| ITC-4 | Details of goods/capital goods sent to job worker and received back | 25th day after ending of qtr. |
Author Bio
Sir my query is ITC has been availed under CGST and SGST, instead of IGST in FY17-18. This unavailed IGST has not been utilized so far. Whether CGST/SGST excess utilized can be adjusted in available IGST, without interest ??